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Wednesday, March 28, 2007

USD/JPY: Trend Line Gives Ways As Bernanke Cites Uncertainties

USD/JPY's 116.65 trend line gives way as Bernanke cites uncertainties in the US economic outlook. The risk of a spillover from the housing market was also noted, underscoring the view that policy may need to be adjusted. Bernanke said that policy decisions would depend on both inflation and growth, yet stood by the view that the current stance fosters sustainable growth and ebbing core inflation.

Sellers in this move lower have included macro names and short-term speculative accounts. Japanese support has been healthy around 116.50 and this has reduced volatility and some of the downside pressure. Lower US yields should continue to work against this pair, increasing the pressure on the JPY carry trade.

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